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Taxes on the Rich vs. the Merely Affluent

By David Leonhardt April 16, 2010 12:54 pmApril 16, 2010 12:54 pm

A few readers wondered whether I was referring to only a very small slice of the highest-income households when I said tax rates on the wealthy had fallen more than on any other group over the last three decades. The short answer is no.

This Congressional Budget Office data shows that rates have fallen sharply not just for the top 0.01 percent of earners, as I mentioned, but for the whole top 1 percent. Since 1979, the average effective federal tax rate for this group has fallen almost 6 percentage points, to 31.2 percent. (To be in the top 1 percent in 2006, a household had to make at least $332,000.) The average rate for most income groups has fallen roughly 4 percentage points since 1979.

It is true that the tax rate for the next slice of the income distribution — say, the 95th percentile through the 99th percentile — has not fallen as much as for the other group. The average tax rate for the top 5 percent of earners as a whole has fallen roughly 3 percentage points since 1979. So a typical household making $134,000 — where the top 5 percent starts — to $332,000 has received a smaller tax cut than most households making less or making more.

Yet the families in this group — what you might call the merely affluent — also have a much bigger pretax income increase than families making less money. The average household in the middle fifth of the income distribution, for example, made only 15 percent more in 2006 than in 1979, after adjusting for inflation. Income of the household at the 95th percentile rose more than 50 percent.

And real income more than tripled for the average family in the top 1 percent, to $1.7 million in 2006, from $535,000 in 1979. This was also the group that received the biggest tax cut. Not a bad combination.

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